Whether a specialist retail valuer can be appointed to determine the current market rent after his or her determination is set aside: Medical One Pty Ltd v 328 Hampshire Road Pty Ltd (Building and Property) [2022] VCAT 795 (13 July 2022)

Many practitioners in this area have observed in recent years an increasing number of cases of current market rent determinations for retail premises being set aside. Many of those cases involved determinations being set aside due to shortcomings in the valuer’s reasons.  

In response, some specialist retail valuers have added a clause in their standard terms of engagement that require the determination to be remitted back to them in the event that it is set aside by the Tribunal. 

In cases that I have worked on, a number of respondents to proceedings seeking orders setting aside determinations of the current market rent have threatened to enforce such a contractual provision.  However, until recently, unsuccessful respondents have not pressed that claim and have (usually begrudgingly) agreed to engage a fresh valuer to determine the current market rent.

However, in the case of 328 Hampshire Road Pty Ltd v Medical One Pty Ltd (Building and Property) [2021] VCAT 1117 the Tribunal set aside a purported determination of the current market rent because the valuer failed to give detailed reasons to:

1. explain why rent paid by Aldi was relevant to determining the rent for a pharmacy;  and
2. provide analysis or critique of market evidence to allow the reader to conclude that the valuer considered the entirety of that evidence.

There was also an argument about the construction of the rental covenant. The valuer determined the rent as a net rent.  The landlord argued that the valuer made an error because the lease required payment of semi-gross rent.  The tenant argued for a different construction of the lease, suggesting that net rent was payable.  The Tribunal declined to determine that issue and held that if the valuer got that question wrong, then it was not a vitiating error.

The respondent did not appeal, but instead sought orders that the determination of the current market rent be remitted back to the original valuer.  The decision in the subsequent case is reported in Medical One Pty Ltd v 328 Hampshire Road Pty Ltd (Building and Property) [2022] VCAT 795.

In that case, the valuer’s terms of engagement contained the following clause:

Review of the determination by a Court of [sic] Tribunal 

17.       Should either the landlord or tenant obtain an order from a Court or Tribunal that: 

17.1       the determination carried out pursuant to this engagement is not in accordance with the provisions of the lease; or 

17.2       the determination of the rent should be assessed at a different figure or in accordance with a different procedure (whether or not the Court or Tribunal provides any specific direction in this regard); 

Then the parties agree to appoint us again to provide a determination in accordance with any directions provided by the Court or Tribunal; and the parties will share equally all our costs and expenses involved in providing the revised determination.

The landlord resisted remittal of the determination back to the valuer on the grounds that (among others):

1. sub-s 37(3) of the RLA 2003 gives the parties the right to agree and, by necessary implication, to disagree with the appointment of a specialist retail valuer.  The above clause is inconsistent with that right and was, accordingly, void under s 94;  and
2. the valuer had already determined the issue of net rent versus semi-gross rent and there is a perception that he would not bring an independent mind to that issue.

The Tribunal rejected those arguments:

1. holding that the time to agree or disagree to the appointment of a valuer arose when the parties could not agree on the rent under the lease.  As the valuer’s terms of engagement (including the disputed clause 17) were signed after that time, the parties were not deprived of their statutory right to agree or disagree to that appointment;  and
2. rejecting the submission that there was an apprehension of bias.

It is not clear how the Tribunal will respond in circumstances where it was satisfied of an apprehension of bias.  There is Victorian Supreme Court authority suggesting that an expert determination should not be remitted to the original expert when the expert has displayed a propensity to support the impugned valuation after the challenge was made (see Candoora No 19 Pty Ltd v Freixenet Australia Pty Ltd (No 2) [2008] VSC 478).  However, there does not appear in that case to have been a clause in the expert’s terms of engagement to the same effect as clause 17 above.

The following are the take-home points from this case:

1. clauses like clause 17 above are becoming increasingly common in valuer’s terms of engagement.  If a valuer is engaged to determined the current market rent for a retail premises, practitioners should check the valuer’s terms of engagement to see if it has one;
2. as the law presently stands, those clauses should be viewed as generally enforceable at VCAT;  and
3. practitioners should advise their client of the presence of the clause and its implications for a challenge to a determination, noting that a clause like clause 17 above can be a useful tool if the determination falls your client’s way and you need to defend a challenge to it. On the other hand, the clause can be problematic if your client wants to challenge a determination.

Sam Hopper and Eli Fryar